Wall Street Breakfast: Must-Know News

• $700B rescue prompts debate. Lawmakers are poised to fast-track the government's $700B comprehensive rescue plan, but are likely to push for minor changes to its form. Treasury Secretary Henry Paulson publicly pressured Congress for rapid action in hopes relieving financial firms of some of their most toxic assets will stabilize shell-shocked credit markets. The most recent draft includes overseas firms that do business in the States, previously excluded - and now asks for permission to buy car loans, credit-card debt and other devalued assets (but stops short of handwritten IOUs). Sticking points include: the prices and terms at which the government will purchase assets; aid for homeowners (currently not included); and Democratic efforts to require the program's participants to cap what they pay their executives. Sources say Paulson will fight the latter 'hard.' Paulson is scheduled to testify Tuesday and Wednesday, meaning a possible House vote on Thursday and Friday to the Senate.
• I-banks seek tellers. The Fed agreed Sunday night to convert Morgan Stanley (MS) and Goldman Sachs (GS) into traditional banks - forever changing the face of Wall Street - a move it hopes will inoculate the once-revered institutions from market turmoil. National bank regulators will subject the firms to a new level of scrutiny, including harsher capital requirements (read: reduced leverage), which will likely impact their profitability. Futures dipped on the news: investors may take the unexpected move as a sign things at the pair - formerly considered rock solid - were far worse than anyone imagined. "The Fed wanted to send a strong statement that they would not allow Goldman and Morgan Stanley to be 'Lehman-ized,'" a source said. As a regular bank, Morgan will probably try to survive without a merger, and both will likely look to acquire deposit-taking banks with low market-to-book ratios.
• Legg Mason may lose its ticker. Legg Mason (LM) is considering selling itself to one or more private-equity firms, including KKR, insiders say. The buyers would likely spin off most of the asset manager's funds after buying the company. A spokesman called the report "categorically untrue." Legg manages almost $1T in assets. On Friday, it put up $630M to support a faltering money-market fund, sending shares up 9.3% - but they're still down 50% YTD.

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• Bank seeks buyer. WaMu (WM) continued to push for a sale of itself over the weekend, under pressure from regulators. Same names (C, JPM, WFC, STD) - same problem: no one wants its mortgage portfolio, expected to bleed $19B over the coming years.
• Loan-shark turnaround. Major AIG (AIG) shareholders plan to meet Monday to discuss alternatives to the government's $85B bailout, sources say. Inexplicably dissatisfied with the 10.5% rate of interest on the massive loan, the group will look for ways to speedily sell off some of AIG's assets - and potentially raise capital in other ways - in order to pay down the debt and return to profitability.
• Nomura buys Lehman Asia. Nomura (NMR) is buying Lehman's Asia operations, a source says. Media reports say Japan's largest brokerage house will pay about $225M. Nomura is also rumored to be in talks to buy some of Lehman's European operations. NMR shares rose 8% in Tokyo. Over the weekend, U.K. PM Gordon Brown said he's pushing the U.S. to help get $8B from Lehman returned to its Britain unit; the amount was transferred to New York just before the bank collapsed.
• Buffett buys Japan toolmaker. IMC International Metalworking, a unit of Warren Buffett's Berkshire Hathaway (BRK.A), will acquire Japanese toolmaker Tungaloy from Nomura (NMR) in a deal valued between $650M-$1B.
• Sanofi ups Zentiva bid. Sanofi-Aventis (SNY) raised its offer for Czech generic drugmaker Zentiva by 9.5%, to $69.71/share - an effort to get Zentiva's board to support the takeover bid. Sanofi fell 1.2% in Paris trading. Sanofi already owns about 25% of Zentiva.
• SanDisk unveils SlotMusic. SanDisk (SNDK), backed by four major music labels (EMI, Sony BMG (SNE), Universal and Warner (WMG)), announced a new physical music format called SlotMusic. Albums will likely be priced at $7-10/album. The effort is a move to boost physical media sales in the face of floundering CD sales; millions of cell phones and MP3 players already have MicroSD slots.

Today's Markets

• Asia closes mostly up: Nikkei +1.4% to 12,091. Hang Seng +1.6% to 19,632. Shanghai +7.8% to 2,236. BSE -0.3% to 13,995.
• European markets have erased earlier gains: London -0.3%. Paris -0.2%. Frankfurt -0.3%.
• U.S. futures: Dow -0.61%. S&P -0.6%. Nasdaq -0.33%.
• Crude +2.15% to $106.80. Gold +2.56% to $886.80.

Monday's Economic Calendar

• 8:30 The Chicago Fed National Activity Index
  11:30 Fed's Richard Fisher speaks on U.S. economy

Seeking Alpha editor Rachael Granby contributed to this post.

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Comments

[A J SESSA:]

a choice between an epithet and a swear word

2008 Sep 22 08:12 AM

[axelrod608:]

j

2008 Sep 22 08:54 AM

[axelrod608:]

Follow the money. If you can. Not only is the trail opaque, one cannot even find out how much bailout money the Fed &Treasury have outstanding and to whom. Are they using the funds to pay off the CEO's yacht, jet, Aspen condo ? It was reported that Lehman used bailout funds to pay officer and employee bonuses. Or are they buying MORE leveraged "investments" in a frantic attempt to get back in the game ? This is casino gambling, not finance.

Before giving any company a penny in bailouts, they should require the resignations of the officers, directors and supervisors of the product areas that got them in trouble. Why give anything to the irresponsible people who ot them into this mess ?

The assumptions are that this mess can be fixed. That fixing it will have a positive outcome. That the folks who created the mess can run their companies better after a bailout than before . That the American economy is strong enough to withtand the stress of a bailout. That America's pension plans, etc. can be saved. I see little evidence that any of the assumptions are valid. Worse, I suspect most of the actors in this off Broadway play have even considered them.

This appears to be the epitome of "throwing good money after bad".

The British never conceived that it was possible that the Empire would ever end. Same for the Egyptians, Romans etc. The American balance sheet says "this is not going to work". And our "leaders" are, yet again, not paying attention.

2008 Sep 22 09:16 AM

[robi:]

I think about alternatives to the deal
<A HREF="kaltenbach.startkabel....">Kaltenbach im Zillertal</A>

2008 Sep 22 09:37 AM

[Richard Col...:]

Good comments axelrod608
I can't understand why they don't investigate the ceo's at Lehman and some of the others, but instead they allow them to take lucrative bonuses etc.
I guess they paid off the Democrats as well as the Republicans.

2008 Sep 22 10:37 AM

[Garya:]

It is pretty simple. The people refuse to borrow. Therefore the government must borrow. Whether this ruins the credit rating of the USA remains to be seen. But it could be a positive for commodities if inflation takes hold. It is a race between inflation which heli Ben wants and deflationary housing and lending that is dragging the economy down.

2008 Sep 22 11:27 AM

[axelrod608:]

Yes, Garya, but "leverage" is just another term for "debt" , which is the cause of this crisis. People, companies and governments need to be NOT borrowing. We have this mess because the "markets" were awash in a tidal wave of liquidity. Adding liquidity only worsens the mess.

Too many people in positions of responsibility are educated far beyond their intelligence. This is not rocket science. You don't solve a financial problem caused by too much cheap money by adding more cheap money to the market. Throw out the delusional economic theory. Leverage is only a good thing when you're on the right side. And we have an entire financial industry on the wrong side. Let them FAIL. Close their doors. Let their successors fix it. Will it hurt ? Yes. I will hurt the perps and the investors that bet on them. Why make innocent taxpayers pay for their perfidy ?

2008 Sep 22 12:32 PM

[Kinabalu:]

Axelrod & User:

I'm sorry what Lehman bailout are you referring to?

2008 Sep 22 01:14 PM

[bbowen7:]

It is understandable, but people are focusing on the wrong issue when they question the Democrats' requirement that the leaders of the banks have their compensation capped. (The public will have its pound of flesh.) In time, the issues that will matter are:
1. Are we only taking care of US banks? If we want to be a global banking center, we cannot have a huge home field advantage.
2. What will the Treasury pay for the paper that they will be buying? That is really the big question - if done properly, and if much of the debt has been the result of panic selling, they should be able to make a profit.
3. Will the Treasury receive an equity stake (warrants?) in the banks as part of the deal to take their paper as some Democrats want? If so, we are really on a socialist path, with the federal government having an ownership position in so many insititutions - and in a way that they cannot close or sell them.

2008 Sep 22 01:21 PM

[whenmusicstops:]

"There's something happening here...What it is ain't exactly clear...stop! Hey what's thats sound Everybody look whats going down...

2008 Sep 22 01:41 PM

[axelrod608:]

Kinabalu - long before the latest "bailout", the Fed opened its "discount window" splashing a tsunami of cheap credit on an inebriated, hung over financial industry. I call that "bailout", and Lehman sucked up a wholse bunch of that money. It was reported that Lehman paid midyear bonuses using some of that money. If they did, in my personal opinion they should be PROSECUTED.

There's way too many fast buck artists, casino gamblers and just plain con men on wall street these days. They make Gordon Gecko look like a choir boy. And that our Congresscritters are even considering bailing these immoral, unethical "financiers" out is unimaginable. How about a little jail time ?

Hopefully they'll get Tyrone as a cellmate. He''ll give them what the Congress won't - payback.-

2008 Sep 22 10:34 PM

[captainjohann:]

Sir,
Can you enlighten me tomorrow, how is it the failure of American Stocks brought down the price of oil from 147 dollars to 90 dollars and now as ameican government os pumping 700 billion dollars, the price of oil shoots up to 120 dollars from 90.Is the bailout is going to texan oil companies or to Saudi terrorists?

2008 Sep 23 12:27 AM

[Gumnaam:]

The root cause of the current mess is housing price slide. There is an enormous over-supply. To fix the problem, among other measures, the most important maybe a temporary prevention of new housing supply coming into the marketplace. Let there be a one year ban on new housing permits. This will help put a bottom on the falling housing prices. Mortgage Backed securities will begin to have renewed value. Does anyone think Congress can or will enact the ban?

2008 Sep 23 10:52 AM